Under The Hood - April 2022 - Crypto Autopilot
Markets are no longer raging anywhere. It’s the bear's time. But does that make sense for crypto?
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The OSOM Crypto Autopilot € performance was -22.04% while the ₿ performance was -10.39%. That's in a market where the index of the Top 200 excluding stablecoins contracted 18.11%. LUNA, NEAR, TRON, and BNB offered the best support.
The Autopilot holds: BTC: 31%; KLAY: 24.1%; TRX: 16%; BNB: 13.7%; XRP: 5%; ATOM: 3.9%; LUNA: 3.7%; NEAR: 1.5%; GALA: 1.1%
In this month's recap of crypto news, we look at the record fundraising of crypto teams, the launch of new ecosystem funds, and some of the "Q1 Earning Reports" of large crypto projects. We also survey where crypto intersects with more "real world" activities, come back on "earth day", and take a look at the development of the moon.
For the future, we keep our eyes on Ethereum, KAVA, and European Politics.
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🔬Markets: Fear Uncertainty and Doubt (FUD ) grip the markets
Uncertainties and doubts around war, inflation, rising interest rates, stagflation, and misguided regulations have gripped the market and almost all assets - digital and traditional - are suffering. Pantera even thinks that we are back to the '70s.
For traditional assets like stocks and bonds, it makes sense. The major indices lost about 10% over the month and that's what you should expect in a market expecting stagflation and rising rates.
Even on the "innovative-end" of the traditional market, it seems like startups are currently raising less money at lower valuations.
But for crypto, it's kind of surprising and it does not match the activity we can see in the space. Everyone is building like crazy, the #1 bottleneck for most projects is "people", and VCs and "Ecosystem Funds" keep pouring in money like there is no tomorrow. We'll give you more details in the "news and happenings" section below.
I suppose that explains the saying: "fortunes are made in bear markets".
1️⃣ The Global Market Capitalisation of Crypto reversed trend & is now lower by nearly 13% than it was last month. Even the stablecoin supply barely grew. The index of the top 200 assets without the stablecoins even contracted 18.11% (INDEXNASDAQ: CMC200)
Bitcoin closed the month with a 13% loss, at € 35'770.07
2️⃣ If we exclude Bitcoin from our calculations and focus on the market capitalization excluding BTC, the numbers don't look very different. It's about a 20% loss for the top 200-ex BTC (INDEXNASDAQ: CMC200EX)
And a little under -14% if we take the whole market capitalization without Bitcoin.
3️⃣The OSOM Crypto Autopilot went in the direction of the market. This month the € performance was -22.04% while the Bitcoin performance was -10.39%
Since 26 September 2019, that’s a 766.95% performance in € and 82.68% in BTC. That’s 129.89% and 26.14% annualized, respectively. "Be fearful when others are greedy and be greedy when others are fearful" -- Warren Buffet 😜
🤿 Autopilot Deep-Dive
💰 What are the holdings in the Autopilot Exactly?
As we enter into May of 2022, the holdings are as follows:
BTC: 31%; KLAY: 24.1%; TRX: 16%; BNB: 13.7%; XRP: 5%; ATOM: 3.9%; LUNA: 3.7%; NEAR: 1.5%; GALA: 1.1%
✍️ Interesting Crypto Autopilot Moves in April 2022
On April 4, 2022, WAVES was removed from the universe following some drama around the WAVES stablecoins and governance proposals that were sure to hurt the price of the token. We preferred to sit it out while things got worked out and might re-include it later.
It was an otherwise pretty calm month with little changes to the investable universe or the holdings in the portfolio. BTC, KLAY, and TRX have pretty much been trusting the top spots for two months now.
It's interesting to see BNB and XRP back in the portfolio. We had not seen sizable BNB positions since May of 2021 and XRP had been pretty much absent since 2020. We had re-allowed taking positions in XRP in March of 2021 and it will have taken the algorithm a full year to decide to make a move.
🏎️ What are the coins driving the performance?
This April 2022, LUNA, NEAR, TRON, and BNB pulled the BTC performance in the right direction. Everything else pulled the other way, with KLAY having a particularly detrimental contribution. It makes sense since KLAY lost about 28% against Bitcoin this past month. It's a fairly "average" performance if compared to the rest of the market, but its weight in the portfolio made it particularly painful.
📅 Crypto News & Happenings in April - Month in Review
As we said earlier, the crypto community keeps on buidling and that's great news. You can't see it in the prices, but maybe that means it's time to go shopping. But Y.D.Y, D.Y.O.R., T.I.N.F.A.
Let's take a look at what we think is worthy of note this month.
1️⃣ As noted earlier, one of the main bottlenecks currently for the industry is getting enough people to work on it. And to solve that problem, ecosystem funds are coming to the rescue. Those funds are launched to incite people to launch projects on one chain or another. Having a better chance at getting paid for the work you do is obviously making you more likely to take the plunge. Kadena is launching a $100 million grant program funded by its treasury to support web3 development. Uniswap also launched a venture unit to invest in Web3 projects. Binance is launching an incubator in Paris and hopes to make it an "on-ramp" for launching projects into Europe (article in French).
2️⃣Venture Capitalists are also pouring money into the space. That money is used to grow and expand ecosystems and projects. Near raised $350 million to accelerate decentralization, Hivemapper raised $18 million to replace Google Maps, and Avalanche's Ava Labs raised $350 million to build out Avalanche. We could keep listing examples, but this quote from CoinTelegraph sums it up nicely: "The first quarter of 2022 saw an unprecedented amount of capital inflows in the blockchain industry. Since the start of 2021, each quarter has continuously increased the total capital invested in this space, culminating in Q1 2022, which ushered in over $14.6 billion in VC investment."
3️⃣ And all that money pouring into the space is not just moving blindly. There are good indicators to suggest that the space is growing rapidly.
For Ethereum, the network's revenues increased 46% from Q1 2021 and Q1 2022 to $2.4 Billion. And the number of daily active addresses also keeps rising and is now at 529'018.
The layer 2 space - the network building on top of Ethereum where you can interact with Ethereum while paying lower fees - is also growing. The value in these networks has increased 964% from $686.9 million to $7.3 billion.
(By the way, If you are curious about Layer-2s and innovations in how to collaborate at scale, you should really read Optimism's latest announcement.)
Similarly, Avalanche is also reporting good numbers. Active daily addresses rose by roughly 24x from last year to this year, and the revenues went from under $2 million to about $52 million for the quarter. Ethereum has held steady at ~1.17 million transactions per day, with Avalanche reaching ~74% of Ethereum's average daily transactions.
At an application level, Uniswap 🦄 saw its volumes double compared to a year ago as the number of available markets more than doubled.
4️⃣ You might ask "there's money pouring in and stuff happening in the ecosystem but can we see any effect in the "real world"". That's a common question, and the answer is "yes if you look close enough". Because none of it is currently highly visible, but it's definitely there.
On the payments front, we had two pretty big news this month: first, Strike announced an integration with Shopify in a bid to help merchants receive bitcoin payments from customers in the form of U.S. dollars. So you can now buy real stuff with your Bitcoin. Then, Stripe announced that they were going to enable Crypto USDC payments on Polygon so that Twitter could more easily send creators money all over the world.
We also saw a survey of financial advisors who said they wanted to see a Crypto ETF in the US and would recommend a 6% allocation to it. If 6% of American wealth was diverted to Crypto we would likely see a significant shift in the market. And, as if on cue, Fidelity made it possible to invest your retirement money (401(k)) into Bitcoin.
Lastly, after El Salvador last year, The Central African Republic (CAR) has approved Bitcoin as legal tender. That's probably not enough to make you want to move there as the mineral-rich country has been plagued by years of conflict, and it's definitely not something the International Monetary Fund likes very much. But it is a well-established fact that innovation comes from the fringe. And now that's 2 countries.
You can also see here, on CNBC, how Bitcoin can be used to get cash in the hands of Ukrainian refugees at lightning speed thanks to the lightning network and Bitcoin ATMs.
5️⃣ Moving on, in April it was "Earth day" 🌎🌍🌏. Since we regularly hear that Bitcoin is going to boil the ocean, we wanted to give you some more balanced perspective as to how running computers to run blockchains impacts our big blue spaceship.
🞂 The Bitcoin Mining Council released an interesting report arguing it's actually one of the greenest industries today.
🞂 Other chains in the Cosmos(ATOM) ecosystem are following suit with Regen Network. Take a look at what they do.
6️⃣ From Earth to Moon 🌕, let us now dwell a little on news from Terra(LUNA). Not because we're LUNAtics but because there are a lot of new interesting developments. (If you missed our Luna explainers, read this and/or listen to that ). Let's focus on the big-picture stuff:
🞂 Early in the month, the LFG foundation announced it was exchanging millions in LUNA for millions in AVAX tokens to put in the LFG reserves alongside Bitcoin (but it doesn't yet show on the dashboard. The reserves are now close to $2 billion, against the $18 billion of UST outstanding.
🞂 Yes, $18 billion. In April UST'market cap grew by about $2 billion, surpassing BUSD, Binance's stablecoin.
🞂 The team believes that all that UST requires to be very liquid (and they are right) and so they took the Curve Wars very literally and decided to create a new "liquidity pool" for UST. That pool made waves. A lot. Because they are taking on one of the "giants" of DeFi, MakerDAO, and it wasn't ready to be challenged.
🞂 If you have been following closely, you will remember that a lot of fears had been expressed around the pivotal role of the Anchor lending/borrowing protocol in UST's success. And that, since it could not continue to pay out 19.45% interest indefinitely, the end of the free money would mean the start of a death spiral for UST and LUNA.
We're about to see who was right. The Anchor protocol rate has moved from "fixed" to "very slowly dynamic" and it has been reduced by 1.5% and users can now only make 17.88% on their money in Anchor (it's still 300x the average savings account). The least it can go to, for now, is 15% which, in this market, is still a pretty good deal if you ask us.
❤️ What Does May Have in Store for us?
We'll keep hoping for peace, and doing what we can to support the people of Ukraine until we get there.
In the cryptosphere specifically, here is what we will be keeping an eye on:
1️⃣ First and foremost, we will be on the lookout for "merge news". The Ethereum Merge to proof-of-stake was widely expected in June but will most likely happen later than that. But it looks like it should happen no later than August because the developers would need to upgrade something else to ship later than August, and they haven't updated that (it's the "difficulty bomb", but it's not really important).
It looks like testing is currently going well, so "fingers crossed". That will be a massive milestone for Ethereum and is required to move on many other fronts.
2️⃣ We will also be on the lookout for anything that might clear some of the fear, uncertainty, and doubt in the global markets.
Above all, we will be watching very closely - and giving our opinion at any chance we get - the "trilogue" discussions around MICA, the Travel Rule, and other AML agreements at the European level. What gets decided there is likely to impact how competitive Europe will be in the Web3 world and to be very important for Europeans. We're not too worried about the impact on decentralized networks which were built specifically to withstand government interventions. But we have a vested interest in making sure the European Union takes the lead on Web3 because it completely failed to do so with Web2. Europe has no tech giant to speak of and now it has the opportunity to build something new.
3️⃣ Kava is launching its mainnet on May 10, 2022. That ought to be interesting because it might become central to a cross-chain world.
That's all for this month! 👋As always, thank you for your trust. Feel free to let us know if you have any questions, ideas for how we can improve - or anything else - by replying to this email!
Take care of yourself and, if you can, someone else, too.
This is not investment advice, nor a solicitation. Crypto markets possess a high level of risk, including volatility and regulatory uncertainty. Past performance does not constitute a guarantee of future results in any way. You are solely responsible for doing your own financial, legal, tax, or investment research before taking any actions.
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The Crypto Autopilot looks at several months of past price data to build a portfolio for the medium to long term (2.5 to 5 years) with the objective of achieving stable growth - which means avoiding drawdowns.